Types of Business Loans In addition to becoming familiar with the sources of loans, it is critical to understand the types of loans offered. As a small business owner if you are just getting started or have yet to possess a ton of experience in the field, more often than not, it is more practical for you to start out with a less desirable loan product and the work your way up. Working Capital Loans Working capital loans are designed to offer short-term solutions for businesses in need of money to help run their operation. Working capital loans are available from both banks and alternative lenders. The advantage of a working-capital loan is that it provides the small business owner with the ability to keep their operations running while they search for other ways to increase revenues. These funds can be used to pay bills, make payroll, purchase inventory, and many more. The disadvantage of a working-capital loan is that they often come with higher interest rates and have short repayment terms. Business Line of Credit Lines of credit are similar to working-capital loans in that they provide small businesses financing for day-to-day cash-flow needs. At some point, almost all businesses will experience some degree of cash-flow problems. A line of credit gives you capital to draw upon to meet a variety of business needs. This type of financing is a great option to help offset the "ups and downs" with business. Most of the time these loans are unsecured and do not require any collateral. They have longer repayment terms and give you the ability to build up your credit rating. Merchant Cash Advance A merchant, or business, cash advance is a loan made to a business based on the volume of its monthly credit card transactions. A newer or existing business might run into an opportunity or an unfortunate situation - these financing options allow the business owner to borrow against future earnings and get funded immediately. This type of financing is innovative, unique, and easy to qualify for, but must be used in the right situations. The disadvantage to these loans is that they can be quite expensive if not used appropriately. Interest rates can run as high as 30% per month, in some situations depending on the lender and how much money is being borrowed. Equipment Loans Business equipment loans help business owners acquire equipment that would normally be too expensive to buy with cash. As opposed to asking for capital outright, equipment loans are more secure than others, and lenders are sometimes more willing to work with you. This type of financing can also help the business owner get the new equipment for their business right away. The advantage to equipment financing is that it allows the company to grow its revenues with a certain tool or piece of machinery. These types of loans also do not require a large down payment, so they help preserve cash-flow. In addition, they offer some tax advantage, like write-offs. SBA Loans Millions of small businesses take advantage of these long-term, low-interest loans every year. SBA loans are offered through traditional and alternative lending sources and are backed by the government. This type of financing is available to small businesses when funding is otherwise unavailable on reasonable terms by guaranteeing major portions of the loans made to small businesses. The loan amounts range from $35,000 - $5mm and are available for a wide variety of business purposes. SBA 7a: can be used as a business acquisition, refinance, start-funds, equipment, buyout of a partner, as well as real estate. SBA 504: is a purchase or construction loan only. SBA Express: offers working capital and equipment. These can be pre-approved in less than 2 days. However, when getting an SBA loan be prepared to give a pint of blood with it. These are your standard government red tape loans. There are standard size requirements, financial standing, and your business must be in a for-profit industry. Accounts Receivable Financing If your small business is in a crunch because your services are provided and payment is not collected for 30 days or more after the work is completed, there are financial factoring companies that are available. Theses lenders will take a look at your clientele who is owning you money and depending on their credibility the financial company will advance funds and then collect the funds from your client to pay the advance off. This can be optimal because the focus is on the business that owes the receivable and not the company receiving the advance.